EOG Reports 2006 Results, Ups Dividend

EOG Resources, Inc. on Thursday reported fourth quarter 2006 net income available to common of $237.2 million, or $0.96 per share. This compares to fourth quarter 2005 net income available to common of $461.8 million, or $1.88 per share. For the full year 2006, EOG reported net income available to common of $1,288.9 million or $5.24 per share as compared to $1,252.1 million, or $5.13 per share, for the full year 2005.

The results for the fourth quarter 2006 included a $4.1 million, or $0.02 per share charge for premium and fees related to the repurchase of $46.7 million of preferred stock and a $31.5 million ($20.3 million after tax, or $0.08 per share) gain on the mark-to-market of financial commodity price transactions. During the quarter, the net cash realized related to financial commodity contracts was $48.2 million ($31.0 million after tax, or $0.12 per share). Reflecting these items, fourth quarter 2006 adjusted non-GAAP net income available to common was $252.0 million, or $1.02 per share.

Last year's fourth quarter results included the following items: a one- time tax expense of $23.6 million ($0.10 per share) related to the repatriation of accumulated foreign earnings, an $11.4 million ($7.3 million after tax or $0.03 per share) gain on the mark-to-market of financial commodity price transactions and a one-time interest charge of $7.5 million ($4.9 million after tax or $0.02 per share) related to the early retirement of EOG's 2008 Notes. There was no cash realized related to financial commodity contracts during the fourth quarter 2005. Reflecting these items, fourth quarter 2005 adjusted non-GAAP net income available to common was $482.9 million, or $1.97 per share. On a similar basis, eliminating the items detailed in the attached table, adjusted non-GAAP net income available to common for the full year 2006 was $1,189.4 million, or $4.83 per share, and for the full year 2005 was $1,271.5 million, or $5.21 per share.

"In 2006, EOG remained true to its strategy by focusing on organic production growth, managing costs and maintaining a strong balance sheet. For the year, we achieved 26 percent return on equity and 25 percent return on capital employed," said Mark G. Papa, Chairman and Chief Executive Officer.

Operational Highlights

Driven by a 14 percent increase in United States natural gas production, total company production for the full year 2006 increased 9 percent over the previous year. During the fourth quarter, United States natural gas production increased 19 percent as compared to the fourth quarter a year ago and 7 percent as compared to the prior quarter. The Fort Worth Basin Barnett Shale, Northeastern Utah Uinta Basin and South Texas Frio and Lobo Plays led the production increases.

EOG's results from the Fort Worth Basin Barnett Shale Play continue to exceed expectations. Production at year-end 2006 surpassed the previously stated goal of 200 million cubic feet per day (MMcfd). In Johnson County, two outstanding natural gas wells, the Heffner Unit #1H and #2H, were drilled as 500 foot offset locations. Simultaneously drilled and completed, the wells began flowing to sales in early January at rates of over 7 MMcfd each and are currently producing 6.0 and 6.8 MMcfd, respectively. EOG has 100 percent working interest in both wells.

EOG also reported results from two offset wells in Hood County in the western part of the play. The Welborn Simon #1H and #2H were also completed in January and began flowing to sales at initial rates of 2.6 and 2.2 MMcfd, respectively. EOG has 100 percent working interest in both wells.

In South Texas, where EOG has recently applied horizontal drilling technology to tight Wilcox sands reservoirs, the North Marshall State Wells Fargo #2H in Webb County was drilled to a vertical depth of over 11,000 feet with a 2,300 foot lateral segment. EOG has a 50 percent working interest in the well, which began producing last week at a gross rate of 13 MMcfd.

In addition to strong results in United States natural gas drilling, EOG has completed five horizontal oil wells to date in the North Dakota Bakken Formation. The most recent, the Warberg 1-25H, was completed in mid-January and is producing over 1,100 barrels of oil per day. EOG plans to increase drilling activity in this play from one to three rigs in early 2007.

"2006 represented a break-out year for EOG; we not only gained a much better understanding of the application of horizontal drilling to resource plays, we also built up a deep drilling inventory," said Papa. "We exited 2006 on track with our operational goals and with strong momentum in the organization."

Reserves

At December 31, 2006, total company reserves were approximately 6.8 trillion cubic feet equivalent (Tcfe), an increase of 607 billion cubic feet equivalent (Bcfe), or 10 percent higher than year-end 2005. In 2006:

     *  From drilling alone, EOG added 1,414 Bcfe of reserves with drilling
        capital expenditures of $2,952 million at a reserve replacement cost
        of $2.09 per thousand cubic feet equivalent (Mcfe) prior to revisions,
        replacing 246 percent of production,
     *  Total reserve replacement from all sources -- the ratio of net reserve
        additions from drilling, acquisitions, revisions and dispositions to
        total production -- was 205 percent at a total reserve replacement
        cost of $2.50 per Mcfe and
     *  Excluding the impact of price related revisions of 179 Bcfe due to
        lower natural gas prices, total reserve replacement was 237 percent at
        a reserve replacement cost of $2.17 per Mcfe.  Price related revisions
        were based on year-end 2006 benchmark Henry Hub pricing of $5.64 per
        million British thermal unit and benchmark West Texas Intermediate
        crude pricing as posted on the New York Mercantile Exchange of $61.05
        per barrel, as compared to year-end 2005 pricing of $10.08 and $61.05,
        respectively.  (Please see attached tables for supporting data for the
        reconciliation of non-GAAP drilling capital expenditures to GAAP total
        costs incurred in exploration and development activities and for the
        calculation of reserve replacement percentages and reserve replacement
        costs.)

For the 19th consecutive year, internal reserve estimates were within 5 percent of those prepared by the independent reserve engineering firm of DeGolyer and MacNaughton. The firm prepared an independent engineering analysis of properties containing 82 percent of EOG's proved reserves on a Bcfe basis.

Capital Structure

At December 31, 2006, EOG's total debt outstanding was $733 million, and cash on the balance sheet was $218 million, for net debt of $515 million. During the fourth quarter, EOG repurchased $47 million of preferred stock, leaving $53 million outstanding. The company's debt-to-total capitalization ratio was 12 percent at December 31, 2006, down from 19 percent at December 31, 2005.

"During 2006, EOG increased production 9 percent, achieved high returns on its capital expenditure program and repurchased preferred stock, while strengthening the balance sheet. We ended the year with an 8 percent net debt-to-total capitalization ratio," said Papa.

Dividend Increase Announced

Following a 50 percent increase in 2006, EOG's Board of Directors again has increased the cash dividend on the common stock. Effective with the dividend payable on April 30, 2007 to record holders as of April 16, 2007, the quarterly dividend on the common stock will be $0.09 per share. The indicated annual rate of $0.36 per share reflects a 50 percent increase from 2006, the seventh increase in eight years.

EOG Resources, Inc. is one of the largest independent (non-integrated) oil and natural gas companies in the United States with proved reserves in the United States, Canada, offshore Trinidad and the United Kingdom North Sea.

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